A Dictionary of Economics by Oxford

Author:Oxford
Language: eng
Format: mobi
Published: 2012-03-15T09:26:12+00:00

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IS curve

A curve showing where ex ante savings and investment are equal. This is a condition of equilibrium in macroeconomic models. The IS curve shows those combinations of national income, Y, and interest rates, r, at which ex ante investment, I, will equal ex ante savings, S. It is usually assumed that when income rises, savings rise considerably and investment changes little. When interest rates rise, investment falls sharply while savings change little. Given these assumptions, to preserve equality between ex ante savings and ex ante investment, if Y rises r must fall; thus the IS curve, drawn with its origin at the lower left corner of a diagram, slopes downwards.

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